Wholesaling is the process in which an investor secures a purchase contract with a seller and then assigns that contract to another buyer - typically an investor. While this practice has gone on for decades, states around the country are starting to crack down on it. At some point in the very near future I believe that most, if not all states, will make a serious push to make it an illegal real estate practice. In the video below Jeff Watson discusses troubling clauses and phrases with two regulators from the Ohio Department of Commerce - Division of Real Estate.
They begin discussing clauses in contract. The first one mentioned is "tying it up." Kimberly Wells said that this is a red flag for her department. "It leads me to believe that you are entering into a contract to show that you have some interest... to avoid license law," said Kimberly. She goes on to say that if you are going to tie up the property to find an end buyer, she questions why you wouldn't you engage the services of a licensed agent. Mr. Watson asks the regulators if it is legal if the seller gives them permission, in writing, to shop the property to potential buyers. Sheila Vitale answers by saying "you cannot contract to violate license laws. You can't enter into a contract and contractually say the seller said it was okay to do."
The bottom line is you cannot advertise something you don't own without a real estate license. Wholesaling walks a fine line there if you don't actually have a cash buyer on your team at the time of contract. The question of "is wholesaling legal" is becoming a very slippery slope. Whether or not the regulators are right, they are enforcing the laws in their state.
Please note that this article does not serve as legal advice. To safely practice wholesaling, consult the Federal and State laws specific to your area before executing any deals.
If you want to avoid the potential legal pitfalls of wholesaling, Express Homebuyers has a Joint Venture Program that may likely net you more profit than a typical wholesale fee would. To find out more about The Express Homebuyers Joint Venture Program click here.